QUESTION 3 (25 MARKS) On 1 January 2019, Melor acquired 90% of the equity share capital of Chempaka in a share exchange in which Melor issued two new shares for every three shares it acquired in Chempaka. Additionally, on 31 December 2019, Melor will pay the shareholders of Chempaka RM1.76 per share acquired. Melor's cost of capital is 10% per annum. At the date of acquisition, shares in Melor and Chempaka had a share market value of RM6.50 and RM2.50 each respectively Statement of Profit of Loss for the year ended 30 September 2019 Melor Chempaka RM1000 RM1000 Revenue 64,600 38.000 Cost of sales (51,200) (26,000) Gross profit 13.400 12,000 Distribution cost (1.600) (1.800) Administrative expenses (3.800) (2.400) Finance costs (420) Profit before tax 7.580 7.800 Income tax expenses (2,800 (1.600) Profit for the year 4,780 6.200 4CCT231/June2020 Page 4 of 8 Equity as at 1 October 2018: Equity shares 30,000 10,000 Retained earnings 54,000 35,000 The following information is relevant: 1 At the date of acquisition, the fair values of Chempaka's assets were equal to their carrying amounts except for these two items: An item plant had a fair value of RM1.8 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to costs of sales. (ii) Chempaka had a contingent liability which Melor estimated to have value of RM450,000. This has not changed as at 30 September 2019. 2. Melor's policy is to value the non-controlling interest at fair values at the date of acquisition. For this purpose. Chempaka's share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. QUESTION 3 (25 MARKS) On 1 January 2019, Melor acquired 90% of the equity share capital of Chempaka in a share exchange in which Melor issued two new shares for every three shares it acquired in Chempaka. Additionally, on 31 December 2019, Melor will pay the shareholders of Chempaka RM1.76 per share acquired. Melor's cost of capital is 10% per annum. At the date of acquisition, shares in Melor and Chempaka had a share market value of RM6.50 and RM2.50 each respectively Statement of Profit of Loss for the year ended 30 September 2019 Melor Chempaka RM1000 RM1000 Revenue 64,600 38.000 Cost of sales (51,200) (26,000) Gross profit 13.400 12,000 Distribution cost (1.600) (1.800) Administrative expenses (3.800) (2.400) Finance costs (420) Profit before tax 7.580 7.800 Income tax expenses (2,800 (1.600) Profit for the year 4,780 6.200 4CCT231/June2020 Page 4 of 8 Equity as at 1 October 2018: Equity shares 30,000 10,000 Retained earnings 54,000 35,000 The following information is relevant: 1 At the date of acquisition, the fair values of Chempaka's assets were equal to their carrying amounts except for these two items: An item plant had a fair value of RM1.8 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to costs of sales. (ii) Chempaka had a contingent liability which Melor estimated to have value of RM450,000. This has not changed as at 30 September 2019. 2. Melor's policy is to value the non-controlling interest at fair values at the date of acquisition. For this purpose. Chempaka's share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest